APPENDIX A: APPLICATION CHECKLIST FOR ASC 805

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1 APPENDIX A: APPLICATION CHECKLIST FOR ASC 805 A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS This application checklist is part of RSM US LLP s A Guide to Accounting for Business Combinations and should be used in conjunction with that.

2 APPENDIX A: APPLICATION CHECKLIST FOR ASC 805 INTRODUCTION This appendix includes a checklist that will assist in the application of ASC 805, which addresses the buyer s accounting for a business combination. The checklist includes a series of questions that, when answered, will help the buyer apply the provisions of ASC 805. These questions are divided into the following categories: Preparation for the application of ASC 805 that should ideally take place in advance of entering into a business combination Determination of whether the business combination is within the scope of ASC 805 Conclusions that should be reached prior to performing a comprehensive accounting for the business combination (i.e., pervasive conclusions) Calculation of goodwill or a gain from a bargain purchase, including considerations relevant to: --Determining the consideration transferred in the business combination --Accounting for any NCI that exists after the business combination --Accounting for the buyer s previously held equity interest in the target --Determining the net assets acquired in the business combination --Recognizing and measuring goodwill or a gain from a bargain purchase Finalization of the initial accounting for the business combination and the disclosures included in the financial statements issued for the reporting period that includes the acquisition date Considerations if the acquisition date for the business combination falls after the end of the current reporting period, but before the date the financial statements for that reporting period are issued or available to be issued Considerations related to the accounting for amounts recognized in the accounting for a business combination after the acquisition date To determine the answers to the questions posed in the checklist and to understand the accounting implications of those answers, it will be necessary for you to consult the relevant in the that provide additional information on the topic of that question. Those have been identified in the checklist. In addition, as of the publication date for this edition of the (June 1, 2016), the FASB has finalized certain changes to the Codification that will affect various aspects of the accounting for a business combination (e.g., recognition and measurement of leases) when those changes become effective. In addition, the FASB is in the process of making additional changes to the Codification that may also affect various aspects of the accounting for a business combination (e.g., definition of a business) if those changes are finalized and become effective. Information about these changes can be found in our summary, Business combinations: In motion ( RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2

3 1. Questions to consider in advance of entering into a business combination: 1.1 Are there appropriate procedures in place to identify situations in which the buyer gains control of a business through the occurrence of an event that may not have involved any direct action on the part of the buyer (e.g., the buyer did not transfer any consideration but obtained control through the lapsing of minority veto rights or the target s purchase of its own outstanding interests) (see Sections and 12.5 of the )? 1.2 Are adequate procedures in place to accumulate the information needed to account for and disclose information about the business combination in accordance with ASC 805? 1.3 Will valuation or other specialists, either external or internal, be needed to assist in the identification, recognition and measurement activities involved in accounting for a business combination in accordance with ASC 805? If so: (a) have the specialists been identified on a timely basis, (b) are appropriate procedures in place to review the qualifications of the specialists and (c) have communications with the specialists taken place regarding (i) the timing and extent of the work to be performed and (ii) the nature and content of the report to be provided by the specialist? 1.4 Has a trial run of the accounting for the business combination in accordance with ASC 805 been performed to gain an understanding of the effects the business combination will have on the buyer s financial statements? 1.5 Has a draft plan been developed for integrating and (or) coordinating the accounting for the target s activities with the accounting processes and systems that already exist within the buyer s operations? 1.6 Has an understanding of the tax effects of the business combination been obtained (see Section 11.4 of the )? 1.7 Has a communication plan regarding the effects of the business combination on the buyer s financial statements been developed? 1.8 Will the financial statements that include the accounting for the business combination be audited? If so, have the auditors been made aware of the business combination and will the auditors be involved in reviewing management s accounting decisions on a timely basis (see Section 4.2 of the )? 3 A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

4 2. Questions to consider when determining whether the business combination is within the scope of ASC 805: 2.1 Did the buyer gain control over a business as a result of a transaction or other event that falls within the scope of ASC 805? (Note 1) Is the target a business as that term is defined in the Codification and used in ASC 805? Did the buyer obtain control of the target as that term is defined in the Codification and used in ASC 805? (Note 1) Does the transaction involve one joint venturer acquiring the other joint venturer s interest in the joint venture? If the target is a VIE, is the VIE a business and are the PB and the VIE not under common control? Is the combination between mutual entities? Is the transaction a leveraged buyout? Is the transaction an exchange of a business for a business? 2.2 Did the buyer enter into a transaction that is not a business combination or that does not fall within the scope of ASC 805? Is the transaction an asset acquisition instead of a business combination? Does the transaction represent a combination between entities under common control? Does the transaction involve not-for-profit entities? Is the transaction the formation of a joint venture? 2.1, 3.1, , , 3.1.3, , 3.1, , , , RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 4

5 2.2.5 If the target is a VIE, are the PB and the VIE under common control? Does the transaction involve financial assets and liabilities of a consolidated VIE that is a collateralized financing entity (as defined) for which specific guidance in ASC applies? (Note 2) 2.3 If the target is a VIE, are the target and the PB not under common control and is the target not a business? 2.1, , 3.1.3, 4.1 Note 1: ASU changed the usual condition for control as it relates to investments in limited partnerships that are not VIEs. Refer to Section 2.1 of the for additional information about this change, including its effective date. Note 2: ASU specifically excluded these transactions from the scope of ASC 805. Refer to Section of the for additional information about this exclusion, including its effective date. If a business combination within the scope of ASC 805 has, in fact, occurred, the remainder of this checklist is applicable to the buyer in the business combination as it applies the acquisition method (see Section 2.2 of the ). 3. Questions to consider prior to performing a comprehensive accounting for the business combination (i.e., questions for which the answers have a pervasive effect on the accounting for the business combination): General 3.1 Which of the entities involved in the business combination is the buyer (i.e., which of the entities involved in the business combination gained control over the other)? (Note 3) Has a reverse acquisition occurred? Has the PB been identified as the buyer when the target is a VIE, the VIE is a business and the PB and VIE are not under common control? 3.2 What is the acquisition date (i.e., what date did the buyer obtain control over the target)? , A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

6 What is or is not part of the business combination? 3.3 Have all other transactions and (or) 7.1.3, 13.1 relationships between the buyer and any of the following parties been identified: (a) the target, (b) employees of the target and (or) (c) the sellers? 3.4 Should any of the other transactions 7.1.3, 13.1 and (or) relationships identified in Question 3.3 be accounted for separate from (or outside of) the business combination? Has the effective settlement of 13.1, 13.2 a pre-existing relationship between the buyer and the target and (or) sellers (e.g., litigation, an executory contract) been accounted for separate from the business combination, including recognition of a gain or loss on that effective settlement? Have replacement share-based 13.1, 13.4 payment awards been apportioned, as appropriate, between compensation and consideration, with that portion representing compensation being accounted for separate from the business combination? Have arrangements with the 13.1, 13.3 employees and (or) sellers of the target been analyzed to determine whether they should be included within the accounting for the business combination (e.g., as a liability assumed or contingent consideration) or treated separate from the accounting for the business combination (e.g., as compensation)? 2016 RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 6

7 3.4.4 Have arrangements with employees of the target under which payments are contingent upon continuing employment (i.e., payments to employees are forfeited upon termination of employment) been accounted for separate from the business combination as compensation? Do any of the ongoing arrangements between the buyer and the sellers of the target (e.g., supply contracts, lease agreements) include abovemarket or below-market terms? 3.5 Have debt and (or) equity issuance and registration costs incurred in connection with raising funds to enter into a business combination been accounted for separate from the business combination in accordance with other applicable U.S. GAAP? 3.6 Have acquisition costs not covered by other applicable U.S. GAAP been accounted for separate from the business combination as an expense when incurred and when the related services have been received by the buyer and has this expense been reflected in operating income? Have the buyer s acquisition costs been paid by the target or the seller? Have the buyer s acquisition costs been paid by a related party (e.g., the buyer s shareholder)? Has a service provider (e.g., a law firm, an investment banking firm) provided multiple services to the buyer in connection with the acquisition of the target (e.g., a law firm provides legal advice and assistance in drafting documents related to the buyer s purchase of the target and the buyer s issuance of debt to finance its purchase of the target)? A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

8 3.6.4 Have any of the acquisitionrelated services been provided by a related party (e.g., a PEG provides acquisition-related services in connection with the purchase of a business by one of its portfolio companies)? Have cash payments for acquisition costs been classified within operating activities on the cash flow statement? Have the income tax effects related to acquisition costs been appropriately considered? 3.7 Have any anticipated restructuring activities expected to be undertaken by the buyer with respect to the target s operations been accounted for separate from the business combination (e.g., recognized as a liability and expensed by the buyer after the business combination when the appropriate conditions are met)? 3.8 Have restructuring activities undertaken by the target prior to the acquisition date been analyzed to determine whether those restructuring activities were undertaken for the primary benefit of the buyer (and [or] the combined entity) and if so, accounted for separate from the business combination? , Note 3: ASU changed the usual condition for control as it relates to investments in limited partnerships that are not VIEs. Refer to Section 2.1 of the for additional information about this change, including its effective date. The next five sets of questions (sets 4 through 8) are organized based on the main elements involved in calculating the amount of goodwill or the amount of a gain from a bargain purchase recognized in the accounting for a business combination. The main elements consist of: Element 1 Consideration transferred (measured predominantly at fair value) Element 2 Acquisition-date fair value of any NCI in the target Element 3 Acquisition-date fair value of the buyer s previously held equity interest in the target Element 4 Net assets acquired by the buyer (which is 100 percent of the target s net assets measured predominantly at fair value) Goodwill or Excess of Elements 1 through 3 over Element 4 Gain from a bargain Excess of Element 4 over Elements 1 through 3 purchase 2016 RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 8

9 4. Questions to consider in determining the consideration transferred (i.e., Element 1) in the business combination: 4.1 Has all consideration transferred or to be transferred been identified? [Note: Consideration transferred may include, among other things, cash, other assets, contingent consideration, equity securities of the buyer and payables to the sellers (e.g., notes payable to the sellers).] If consideration transferred has a carrying value at the acquisition date that is different from its fair value and the consideration will no longer be under the control of the buyer after it is transferred, has a gain or loss been recognized? Have replacement share-based payment awards been apportioned between compensation for future services and consideration transferred? Has all contingent consideration been identified? Has consideration transferred subject to a working capital adjustment been identified? 4.2 Has all consideration transferred, except for replacement share-based payment awards, been measured at its acquisition-date fair value? If there is an active market price for the buyer s shares, was the fair value of any equity securities of the buyer issued as consideration transferred measured by taking that active market price and multiplying it by the number of shares issued (as required by ASC 820)? 12.1, , , 12.4, , A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

10 4.2.2 If there is not an active market price for the buyer s shares, was the fair value of any equity securities of the buyer issued as consideration transferred measured using the guidance in ASC 820 (e.g., use of an appropriate valuation technique and inputs)? 4.3 Have replacement share-based payment awards (or the portion thereof) that represent consideration transferred been measured using the guidance in ASC 718? 4.4 Was contingent consideration properly classified as an asset, liability or equity using the applicable guidance in the Codification? 4.5 Have the income tax effects of contingent consideration been appropriately considered? , Questions to consider in accounting for any NCI that exists after the business combination (i.e., Element 2): 5.1 Does an NCI in the target remain after the acquisition? [Note: This would be the case in what is often referred to as a partial acquisition, which results when the buyer owns less than 100 percent of the target after the acquisition.] 5.2 Have the financial instruments (or embedded features) that make up the NCI been properly identified using the applicable guidance in the Codification? 5.3 Has the NCI been measured at its acquisition-date fair value? 10.20, , RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 10

11 5.3.1 If there is an active market price for the shares held by the NCI shareholders, was the fair value of the NCI measured by taking that active market price and multiplying it by the number of shares held by the NCI shareholders (as required by ASC 820)? If there is not an active market price for the shares held by the NCI shareholders, has the fair value of the NCI been measured using the guidance in ASC 820 (e.g., use of an appropriate valuation technique and inputs), which usually requires incorporation of a DLOC and (or) DLOM? 5.4 Within the consolidated balance sheet, has the NCI been clearly identified and labeled and presented separately within equity (unless the public company redeemable securities guidance requires presentation of the NCI as mezzanine equity)? [Note: Given that the public company redeemable securities guidance was issued by the SEC and SEC staff, it is only technically applicable to public companies. However, we believe non-sec registrants should also follow this guidance in most situations.] A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

12 6. Questions to consider in accounting for the buyer s previously held equity interest in the target (i.e., Element 3): 6.1 Did the buyer previously hold an equity interest in the target? [Note: This would be the case in what is often referred to as a step acquisition or a business combination achieved in stages.] 6.2 Has the buyer s previously held equity interest been remeasured to its acquisition-date fair value? If there is an active market price for the shares held by the buyer prior to obtaining control of the target and consideration was transferred in the business combination, was the fair value of the buyer s previously held equity interest measured by taking that active market price and multiplying it by the number of shares held by the buyer prior to obtaining control (as required by ASC 820)? If there is not an active market price for the shares held by the buyer prior to obtaining control of the target and consideration was transferred in the business combination, was the fair value of the buyer s previously held equity interest measured on a noncontrolling basis using the guidance in ASC 820 (e.g., use of an appropriate valuation technique and inputs), which usually requires incorporation of a DLOC and (or) DLOM? If consideration was not transferred in the business combination, was the fair value of the buyer s previously held equity interest measured on a controlling basis? 6.3 Has a gain or loss been recognized by the buyer for the difference between the carrying amount and fair value of its previously held equity interest in the target? 12.1, , , 12.5, RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 12

13 7. Questions to consider in determining the net assets acquired (i.e., Element 4) in the business combination: Recognition 7.1 Have all the identifiable assets acquired 7.1, 10.1, and liabilities assumed that meet the 18.1 definitions of assets and liabilities in CON 6 been recognized? (Note 4) Do all intangible assets recognized 10.2, 10.3, satisfy the separability and (or) 18.1 contractual-legal criterion? Have all identifiable intangible assets that satisfy the separability and (or) contractual-legal criterion been identified? (Note 4) Has the buyer s intended use 10.2, 10.4, (or nonuse) of an acquired asset been ignored for purposes of determining whether an asset should be recognized? Were any of the following 7.1, 10.1, acquired and if so, should an 10.2, 10.3, asset (an intangible asset in 18.1 many cases) or liability be recognized based on the definitions of assets and liabilities in CON 6 and (or) the separability and (or) contractual-legal criterion: [Note: The items that follow are not a complete list of all of the assets that could be acquired or liabilities that could be assumed in a business combination. For a more comprehensive list of items that give rise to intangible assets (or, in some cases, liabilities) that could be acquired in a business combination, refer to Sections 10.2 and 10.3 of the.] (a) Customer lists? (Note 4) 10.2, 18.1 (b) Customer contracts? (Note 4) 10.6, 18.1 (c) Customer relationships? (Note 4) 10.6, 10.11, A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

14 (d) Order or production backlog (e.g., backlog of purchase and sale orders)? (Note 4) 10.6, 18.1 (e) R&D activities? 10.3, 10.7 (f) Servicing rights that are 10.9 contractually separate from the financial assets to which they relate? (g) Construction contracts within the scope of ASC ? (Note 5) (h) Operating leases in which the target is the lessee or the lessor? (Note 6) (i) Capital leases in which the target is the lessee? (Note 6) (j) Legal performance obligations to the target s customers (i.e., deferred revenue)? (Note 5) (k) Defensive intangible assets? (l) Asset retirement obligations? (m) Reacquired rights (i.e., rights previously licensed by the buyer to the target)? (n) Contingent consideration liabilities of the target, which relate to business combinations in which the target was the acquirer? (o) Restructuring activities undertaken by the target prior to the acquisition date that should be included within the accounting for the business combination? Have intangible R&D assets for which there is not topic-specific guidance in U.S. GAAP been classified as indefinite-lived intangible assets? RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 14

15 7.1.5 None of the following should be recognized in the accounting for the business combination: (a) An intangible asset for an assembled workforce (b) A liability for any anticipated restructuring activities expected to be undertaken by the buyer with respect to the target s operations (c) A liability for any restructuring activities undertaken by the target prior to the acquisition date that should be accounted for separate from the business combination (e.g., those restructuring activities undertaken by the target for the primary benefit of the buyer and [or] the combined entity) (d) A liability for the target s pre-existing straight-line rent liability (Note 6) (e) A customer relationship intangible asset for the relationship that existed between the buyer (as the target s customer) and the target prior to the business combination (f) Servicing rights that are not contractually separate from the financial assets to which they relate (g) If the target is the lessee in an operating lease: (a) an asset for the right to use the asset that is the subject of the operating lease or (b) a liability for the obligation to make operating lease payments to use the asset that is the subject of the operating lease (Note 6) (h) A valuation allowance on accounts receivable (i.e., an allowance for doubtful accounts) , A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

16 (i) A deferred tax liability for the excess of goodwill for book purposes over taxdeductible goodwill (j) If the buyer has elected the private-company intangible asset alternative (see Section 18.1), intangible assets for NCAs, and CRI assets that cannot be separately sold or licensed 7.2 Have the following been recognized even if they do not meet the definitions of assets and liabilities in CON 6? [Note: ASC 805 provides other recognition thresholds for these acquired assets and assumed liabilities.] Assets or liabilities for contingencies not specifically addressed in ASC 805 (e.g., litigation contingencies, warranty obligations) whose fair value can be determined or for which: (a) it is probable at the acquisition date that an asset or liability exists and (b) the amount is reasonably estimable? Indemnification assets for which the indemnified item has been recognized? All income tax-related assets and liabilities using the guidance in ASC and ASC 740? Employee benefit-related assets and liabilities using the applicable guidance in the Codification (e.g., ASC , ASC )? Share-based payment awards using the guidance in ASC 718? Insurance and reinsurance contracts using the guidance in ASC 944? 7.3 Have all assets and liabilities been identified and recognized based on the facts and circumstances that existed as of the acquisition date? , , RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 16

17 7.4 If the buyer reduces its pre-existing valuation allowance on its deferred tax assets as a result of acquiring the target, have the effects of that reduction been recognized as an income tax benefit or, in certain limited situations, as a credit to contributed capital as required by ASC , and have the related disclosures been provided? Classification and designation 7.5 Do any of the assets acquired by the buyer (including any assets classified as held for sale by the target prior to the business combination) meet the criteria to be classified as held for sale in ASC ? 7.6 Were the target s leases classified by the buyer as operating or capital based on the terms, conditions and other relevant facts in existence at the inception of the lease or if a subsequent modification occurred after inception (but before the acquisition date), based on the terms, conditions and other relevant facts in existence when the lease was modified? (Note 6) 7.7 If the target is an entity that falls within the scope of ASC 944, were the contracts written by it classified as insurance contracts, reinsurance contracts or deposit contracts based on the terms, conditions and other relevant facts in existence at the inception of the contract or if a subsequent modification occurred after inception (but before the acquisition date), based on the terms, conditions and other relevant facts in existence when the contract was modified? , , , , A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

18 7.8 Have acquired transactions, instruments or agreements other than those covered by Questions 7.5 through 7.7 been redesignated, reclassified or re-evaluated by the buyer on the acquisition date, as appropriate? [Note: The items that follow are not a complete list of all of the transactions, instruments or agreements that may need to be redesignated or reclassified on the acquisition date.] Do any of the acquired contracts include embedded derivatives within the scope of ASC 815 and if so, should those derivatives be separated from the host contracts? Do any of the acquired contracts include derivatives within the scope of ASC 815 that qualified for the normal purchases and normal sales exception before the acquisition continue to qualify for that exception after the acquisition and if so, has the exception been elected? Do any of the acquired contracts involving derivatives within the scope of ASC 815 for which hedge accounting was applied before the acquisition continue to qualify for hedge accounting after the acquisition and if so, has hedge accounting been elected? (Note 7) Should acquired investments that fall within the scope of ASC 320 be reclassified between trading, available-forsale and (or) held-to-maturity, as appropriate? (Note 8) RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 18

19 7.8.5 Should the election be made to account for any of the instruments acquired that fall within the scope of ASC using the fair value option provided for in that subtopic? Should the multiple deliverables within a multiple-element arrangement be bundled together or separated for accounting purposes based on the guidance in ASC or ASC ? (Note 5) Measurement 7.9 Have all of the assets acquired and liabilities assumed, except those in the list that follows, been measured at 100 percent of their fair value? [Note: ASC 805 provides different measurement attributes for the acquired assets and assumed liabilities listed below.] Have contingent assets and liabilities not specifically addressed in ASC 805 (e.g., litigation contingencies, warranty obligations) for which the fair value can be determined been recognized and measured at that fair value? Have contingent assets and liabilities not specifically addressed in ASC 805 (e.g., litigation contingencies, warranty obligations) for which the fair value cannot be determined been recognized (and measured at their reasonably estimable amounts) if: (a) it is probable at the acquisition date that such assets and liabilities exist and (b) their amounts are reasonably estimable? , A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

20 7.9.3 Have indemnification assets been measured consistent with the basis used to measure the indemnified item and have collectibility and contractual limitations been taken into consideration as appropriate? Have all income tax-related assets and liabilities been measured using the guidance in ASC and ASC 740? Have employee benefit-related assets and liabilities been measured using the applicable guidance in the Codification (e.g., ASC , )? Did the approach taken to measure the fair value of reacquired rights not take renewals into consideration? Have share-based payment awards been measured using the guidance in ASC 718? Have assets that meet the held-for-sale criteria in ASC been measured using fair value less costs to sell? Have insurance and reinsurance contracts been measured using the guidance in ASC 944? 7.10 Have all amounts been measured based on the facts and circumstances that existed as of the acquisition date? , RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 20

21 7.11 Have the fair value measurements for all nonfinancial assets been based on their highest and best use from a market participant s perspective? 7.12 If the buyer believes that the target s carryover bases in accounts receivable, accounts payable and accrued liabilities approximates their fair values, has the buyer documented how it determined that there are not material differences between the carryover basis and fair value for each of those accounts? 7.13 Is the fair value measurement for deferred revenue based on the fair value of the remaining legal performance obligations to the target s customers (which is likely much less than the deferred revenue recognized by the target prior to the business combination)? (Note 5) 7.14 Was the fair value of a tangible long-lived asset with a related ARO measured exclusive of the effects of the ARO? 7.15 Has inventory been measured at the price that would be received to sell it in an orderly transaction between market participants on the acquisition date (i.e., its fair value), which often is not the same as its carrying amount prior to the business combination? 10.4, Note 4: If the buyer has elected the private-company intangible asset alternative (see Section 18.1 of the ), the following intangible assets are not recognized in the accounting for a business combination: (a) intangible assets that would otherwise arise from NCAs or (b) CRI assets that cannot be separately sold or licensed. With respect to intangible assets other than those related to customers and NCAs (e.g., trademarks, patents), the guidance generally applicable to the recognition of intangible assets in a business combination should be applied. Note 5: ASU superseded virtually all of the revenue recognition guidance in ASC 605 and provided a new comprehensive revenue recognition model in ASC 606. Refer to Section of the for additional information about the new revenue recognition guidance, including its effective date. Note 6: The FASB issued ASU in February 2016, which will, upon its effective date, significantly change the accounting for leases acquired in a business combination. For additional information about ASU , including its significantly deferred effective date, refer to our summary, Business combinations: In motion ( Note 7: In general, there are complexities associated with qualifying for hedge accounting with a pre-existing derivative that no longer has a zero fair value. Note 8: The FASB issued ASU in January 2016, which will, upon its effective date, significantly change the accounting for investments in equity securities that are not accounted for using the equity method of accounting. For additional information about ASU , including its significantly deferred effective date, refer to our summary, Business combinations: In motion ( 21 A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

22 8. Questions to consider with respect to recognizing and measuring goodwill or a gain from a bargain purchase: 8.1 Have valuation and (or) other specialists been engaged to assist in identifying assets acquired and liabilities assumed as well as measuring the fair value of: (a) an acquired asset or assumed liability, (b) any part of the consideration transferred, (c) any NCI in the target and (or) (d) any previously held equity interest in the target? 8.2 Has the amount of goodwill or gain from a bargain purchase been calculated in accordance with ASC 805? 7.1, 8.1, through If a bargain purchase results: Has the accuracy and completeness of the identifiable assets acquired and liabilities assumed and the appropriateness and application of the procedures to value each item that affects the accounting for the business combination been double checked? Has the buyer documented and disclosed the factors specific to its business combination that gave rise to the bargain purchase? Was the gain from the bargain purchase attributed entirely to the buyer (and none attributed to any NCI)? 8.4 If applicable, have the acquired assets, assumed liabilities and goodwill been assigned to reporting units using a reasonable and supportable methodology? (Note 9) Has adequate documentation supporting the basis for the methodology and the methodology itself been prepared? (Note 9) 8.5 If applicable, has goodwill been allocated to the controlling interest and NCI? , , Note 9: If the buyer has elected the private-company goodwill alternative (see Section 19.1 of the ), it may adopt an accounting policy to test and measure goodwill for impairment at either the reporting unit or entity level. If the buyer elects to test for and measure goodwill impairment at the entity level, assignment of amounts to reporting units for purposes of testing goodwill for impairment is not necessary RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 22

23 9. Questions to consider in finalizing the initial accounting for the business combination and the disclosures included in the financial statements issued for the reporting period that includes the acquisition date: 9.1 Which aspects, if any, of the initial accounting for the business combination are incomplete? Is the process of identifying all assets acquired and liabilities assumed complete for purposes of the initial accounting? Have any provisional amounts been reflected in the initial accounting? 9.2 Have the required disclosures been made for those items for which the initial accounting is not complete in the financial statements issued for the reporting period that includes the acquisition date (e.g., provisional amounts)? 9.3 Have all other disclosures required by ASC 805 been included in the financial statements? 9.4 Have the additional disclosures for intangible assets required by ASC through 5 been included in the financial statements? 9.5 If a contingent consideration asset or liability meets the definition of a derivative, have the presentation and disclosure requirements applicable to derivatives been satisfied? 9.6 Have the additional disclosures required upon the initial consolidation of a VIE been included in the financial statements? , , , , A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

24 10. Questions to consider if the acquisition date for the business combination falls after the end of the current reporting period, but before the date the financial statements for that reporting period are issued or available to be issued: 10.1 Have the appropriate disclosures been made? [Note: If the buyer s initial accounting for the business combination is complete when the financial statements are issued or available to be issued, ASC 805 requires the same comprehensive disclosures in this situation as are required when the business combination occurs during the current reporting period. If the buyer s initial accounting is not complete when the financial statements are issued or available to be issued, the buyer provides the disclosures it can, describes the disclosures it cannot provide and explains why those disclosures could not be provided.] 14.1, 14.3, Questions to consider related to the accounting for amounts recognized in the accounting for a business combination after the acquisition date: Adjustments to amounts recorded in the accounting for the business combination 11.1 Should an amount recorded in the accounting for the business combination be adjusted? [Note: The remainder of this set of questions discusses measurement period adjustments (which affect the accounting for the business combination) and subsequent accounting adjustments (which typically affect net income).] Measurement period adjustments 11.2 Should the adjustment be recorded as a measurement period adjustment? Did the adjustment occur during the measurement period? RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 24

25 Does the adjustment result from the buyer obtaining additional information about the facts and circumstances that existed as of the acquisition date that would have affected the accounting for the business combination as of the acquisition date if it had been known? 11.3 Has any working capital adjustment been analyzed to determine whether it should be accounted for as a measurement period adjustment? 11.4 If the adjustment should be accounted for as a measurement period adjustment and ASU has not yet been adopted (Note 10): Has the measurement period adjustment been recorded retrospectively as of the acquisition date? Have the appropriate adjustments to previously reported amounts been reflected in those amounts when they are included in subsequently issued financial statements? Have any other postacquisition effects of the measurement period adjustment been reflected in the buyer s balance sheet and (or) income statement (e.g., if the measurement period adjustment affects the fair value estimate for a piece of equipment, has depreciation expense recorded on that equipment since its acquisition by the buyer and the accumulated depreciation on that equipment been adjusted to take into consideration the adjusted book basis for the equipment)? A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

26 Have the appropriate disclosures been made about the measurement period adjustment and the effects it has on goodwill? 11.5 If the adjustment should be accounted for as a measurement period adjustment and ASU has been adopted (Note 10): Has the measurement period adjustment been measured as of the acquisition date and recorded in the period in which it occurred? Does the measurement period adjustment take into consideration the income statement effects (if any) that would have resulted in the intervening period (i.e., the period from the acquisition date through the period that ended before the adjustment occurred) if the measurement period adjustment (hypothetically) had been recorded as of the acquisition date (e.g., if the measurement period adjustment affects the fair value estimate for a piece of equipment, does the measurement period adjustment reflect the income statement effects of what the depreciation expense on the equipment would have been since its acquisition if it were based on the adjusted fair value estimate of the equipment)? Have the appropriate disclosures been made about the measurement period adjustment and the effects it has on goodwill? 12.7, , RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 26

27 Subsequent accounting adjustments 11.6 Should the adjustment be accounted for using the subsequent accounting guidance in ASC 805 or other guidance in the Codification applicable to assets and liabilities recognized in the accounting for the business combination? [Note: The remaining items in this set of questions are not a complete list of all of the items for which the Codification provides subsequent accounting guidance that is applicable to assets and liabilities recognized in the accounting for a business combination (see Section 8.2 of the ).] Contingent consideration 11.7 Has contingent consideration classified as an asset or liability been remeasured to its fair value at the end of each reporting period it remains outstanding with the change in fair value reflected in the income statement (unless the contingent consideration qualifies as a designated hedging instrument)? If the contingent consideration asset or liability is not a derivative, has the change in fair value been reflected in operating income? 11.8 Has a contingent consideration liability of the target (i.e., a liability from a business combination in which the target was the acquirer) been remeasured to its fair value at the end of each reporting period it remains outstanding with the change in fair value reflected in the income statement (unless the contingent consideration qualifies as a designated hedging instrument)? 11.9 Should the classification of contingent consideration as a liability or equity be reassessed at the balance-sheet date (e.g., because the contingent consideration falls within the scope of ASC )? 8.2, A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

28 11.10 Has a contingent consideration liability only been derecognized upon settlement or expiration of the contingency? Have cash payments to settle contingent consideration obligations been properly classified in the cash flow statement? If contingent consideration classified as equity is settled by issuing equity shares, has the par value of the shares been reclassified from additional paid-in capital to common stock? Have other accounting implications of not meeting the threshold that makes contingent consideration payable (e.g., impairment of goodwill or customer relationship intangible assets) been considered? Acquired receivables with deteriorated credit quality Has the appropriate subsequent accounting guidance been applied to acquired accounts or loan receivables with deteriorated credit quality? Customer relationship intangible assets Are the amortization method and period used to amortize the customer relationship intangible asset consistent with the assumptions used to estimate the fair value of the customer relationship intangible asset? (Note 11) Defensive intangible assets Has the appropriate useful life for a defensive intangible asset been determined? Contingent assets and liabilities Is the buyer s subsequent accounting policy for contingent assets and contingent liabilities not specifically addressed by ASC 805 (e.g., litigation contingencies, warranty obligations) systematic and rational? , RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 28

29 Indemnification assets Does the subsequent measurement of an indemnification asset follow the subsequent measurement of the indemnified item and have collectibility and contractual limitations been taken into consideration as appropriate? Has an indemnification asset only been derecognized if: (a) the asset has been collected, (b) the asset has been sold or (c) the right to the asset has been lost? Reacquired rights Is a reacquired right being amortized over the remaining term of the agreement that existed between the buyer and the target? Indefinite-lived R&D intangible assets Have any R&D activities acquired in a business combination been completed or abandoned and if so, have the effects of the completion or abandonment been taken into consideration in the subsequent accounting for the indefinite-lived R&D intangible asset recognized in the accounting for the business combination? Income-tax related Has an adjustment to a deferred tax asset valuation allowance that is not a measurement period adjustment been recognized within income tax expense (or, in certain limited situations, as a direct adjustment to contributed capital as required by ASC )? Have changes in uncertain tax positions that affect income tax-related amount(s) recognized in the accounting for the business combination (e.g., deferred tax assets or liabilities, payables to or receivables from taxing authorities, a liability for unrecognized tax benefits) that are not measurement period adjustments been recognized as they would have been recognized if the changes related to uncertain tax positions that were not acquired in, or did not result from, a business combination? , A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 2016 RSM US LLP. All Rights Reserved.

30 Goodwill If the private-company goodwill alternative has been elected, is goodwill being amortized over a period of 10 years or a shorter period that can be shown to be more appropriate? (Note 12) Buyer s ownership interest Have changes in the buyer s ownership interest after the acquisition date been accounted for appropriately? Disclosures Have the disclosures in ASC 805 about the subsequent accounting for certain amounts recorded in the accounting for the business combination been provided in the financial statements? Note 10: ASU changed how measurement period adjustments should be reflected in the financial statements. Refer to Section of the for additional information about the changes, including their effective date. Note 11: If the buyer has elected the private-company intangible asset alternative (see Section 18.1 of the ), CRI assets that cannot be separately sold or licensed are not recognized in the accounting for the business combination. Note 12: If the buyer has elected the private-company goodwill alternative (see Section 19.1 of the ), goodwill must be amortized. Otherwise, goodwill is not amortized RSM US LLP. All Rights Reserved. A GUIDE TO ACCOUNTING FOR BUSINESS COMBINATIONS 30

31 This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. Internal Revenue Service rules require us to inform you that this communication may be deemed a solicitation to provide tax services. This communication is being sent to individuals who have subscribed to receive it or who we believe would have an interest in the topics discussed. RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus. com/aboutus for more information regarding RSM US LLP and RSM International. RSM and the RSM logo are registered trademarks of RSM International Association. The power of being understood is a registered trademark of RSM US LLP RSM US LLP. All Rights Reserved. wp_as_0616_business combinations _appendix a